Jordan seeks to boost foreign investment

The Jordanian authorities have had partial success in projecting an image to potential investors of the country as a safe haven in a troubled region. However, foreign direct investment (FDI) inflows have fallen sharply since their 2006‑08 peak. In late May Jordan hosted a World Economic Forum (WEF) meeting at the Dead Sea that the government hoped would give it some useful global and regional exposure. Without ignoring the upheavals on its borders,the government used the
meeting to promote its location in the region as a benefit, rather than a
drawback. However, with conflicts in both Iraq and Syria showing little signs of abating, Jordan faces a challenging investment environment.

In his opening speech to the WEF, King Abdullah II described Jordan as "a gateway for regional and world trade and business" and insisted that "to define our region by problems and not solutions is to miss huge potential". The investment projects that the Jordanian government promoted at the WEF are ambitious, with an estimated total cost of US$20bn and a goal of creating 180,000 new jobs. The projects include the US$18bn Iraq-Jordan oil pipeline, the cost of which is to be borne largely by Iraq and which will send 1m barrels/day (b/d) of crude oil and 258m cu ft of gas daily. Of this, 150,000 b/d of oil and 100m cu ft of gas would be for Jordan's needs and the remainder exported from Aqaba, earning Jordan substantial fees. However, ongoing security problems in Iraq make the realisation of the project a distant prospect. Other large-scale projects announced included US$1.5bn in solar and wind power schemes in the north and east of Jordan and solar plants in the south and east. There are also plans for a US$550m uranium production facility in central Jordan and a US$1.5bn oil shale surface retorting plant.

Investment levels remain subdued

With infrastructure ambitions on this scale and limited financial resources of its own, Jordan will have to boost the inflow of FDI well above current levels. Despite a modest pick-up in 2013‑14, annual FDI inflows remain at little more than half their peak levels, reaching just over JD1.24bn (US$1.8bn) in both 2013 and 2014 from a little over over JD1bn annually in the two previous years, and the level is well below what is needed to help finance the major schemes the government is now promoting.

At the end of the WEF event, officials could point to some success, with 19 agreements worth US$8.5bn signed, and the prime minister, Abdullah Ensour, saying that other projects were in the pipeline but still at an early stage. Deals that were signed included an agreement between the Ministry of Energy and Mineral Resources and BG Group (which is being taken over by Royal Dutch Shell), to purchase LNG from BG over a 20‑year period, another with a local company, Green Watts, for a US$174m wind energy project, and a third deal with a Chinese firm, Hanergy, for US$1.5bn in investment in solar and wind projects.

Investor interest in areas such as renewable energy has been strong, but other projects present greater challenges in attracting foreign investment. Both Jordan and Iraq remain committed to their ambitious oil pipeline project, but it has now been on the table for several years and there seems little prospect of it getting started while the Iraqi government faces a major challenge from Islamic State (IS) forces in areas along its original proposed route from the southern Iraqi city of Basra through central Iraq—including areas currently under the control of the extreme jihadi group—to Aqaba. In late May the Iraqi government said it was reviewing alternative routes, including taking the pipeline through Saudi Arabia to Jordan. A major oil shale project is also reported to be facing difficulty in raising funds, while local opposition to plans for nuclear energy is growing.

Multilateral support

Jordan's close links with the US and the EU ensure that the major multilateral institutions are keen to support its investment plans. The president of the European Bank for Reconstruction and Development (EBRD), Suma Chakrabati, was in Jordan for the WEF and said that the bank intends to direct a significant share of a new €1bn (US$1.1bn) in funds it is requesting for the southern and eastern Mediterranean region towards Jordan. He told a WEF session that the EBRD was going to take more equity stakes in companies in Jordan over the next five to ten years. The EBRD began investing in Jordan in September 2012 and has so far disbursed €337m in project funding, ranging from solid waste management and pharmaceuticals to banking, solar plants and the IPP4 Al Manakher power plant. Mr Chakrabati also encouraged the region's sovereign wealth funds to consider Jordan for investment.

The chairman of a Dubai-based property company, Emaar, Mohammed al‑Abaar, also suggested that Jordan had strong investment potential and that if the economy was able to grow in the existing challenging climate, it had substantial additional potential if and when the regional climate improved. Nevertheless, many major Gulf investors are unwilling to make a major bet on Jordan at present, although Gulf Arab governments have given Jordan financial support. Gulf investors showed a strong interest in Jordan in the boom years before the global financial crisis in 2008‑09 but this has not been revived, even as their economies recovered and benefited from high oil prices in 2012‑14.

In early May the government launched its Vision 2025 plan, a ten-year economic blueprint that it hopes will boost annual GDP growth to as much as 7.5% a year on average by the end of the plan. Such an ambitious target will not be achieved without substantial foreign investment. Jordan has to hope that perceptions of its domestic stability outweigh the reality of the growing chaos surrounding it.